Sadiq, K. et al., 2019. Principles of taxation law 2019, Thomson Reuters (Professional) Australia Ltd.QuestionsCHAPTER 12 – GENERAL DEDUCTIONSQuestion 12.1Jeremy runs his own public relations business. During the year he incurred the followingexpenses:(a) salary costs of $500,000;(b) salary costs of $5,000 for his daughter who worked with him for one week as part ofher university training;(c) travel expenses of $7,000 for travel between home and work;(d) travel expenses of $3,000 for travel from a client’s premises to his home;(e) $1,500 on a new suit to impress his clients;(f) $700 on membership of the local sports club where he entertains clients; and(g) $8,000 in meal expenses on entertaining clients.Advise Jeremy of his tax consequences in relation to the above expenses.Question 12.2Sulin is an accountant at a large accounting firm. In May, she went to Hong Kong for anaccounting conference. She incurred expenses of $2,000 on the plane ticket and $500 onhotel costs. Her employer did not reimburse her for those expenses but provided Sulin witha daily allowance of $200 for her meal and local transportation costs. Sulin had chosen to goto the conference because her family is in Hong Kong and she took the opportunity to visitthem while she was there. The conference ran for two days and she stayed on for anadditional four days at her parents’ home.Advise Sulin as to the deductibility of the airfare and hotel costs.Question 12.3QI Pty Ltd is a job recruitment agency located in the Melbourne CBD. The company uses newtechnology invented by its parent company in the UK. QI recently incurred $200,000 of legalexpenses in successfully preventing a rival UK company from using the same technology inMelbourne. The court order prevents the rival UK company from using the same technologyin Melbourne for a period of five years.Advise QI as to the deductibility of the legal expenses.Question 12.4Rumpole is a scientist. He uses his own car to travel to various locations to conductexperiments. He acquired the car on 1 October 2018 for $60,000. The acquisition cost wasfunded entirely by a loan at an interest rate of 15%. He has determined that thedepreciation deduction on the car would be $2,300 for the year. In addition, Rumpoleincurred the following expenses during the year:• Registration and insurance = $2,000;2• Repairs and maintenance = $1,000; and• Oil and fuel costs = $1,500.For the period 1 October 2018 to 30 June 2019, Rumpole estimates that the car travelled atotal of 15,000 kilometres, 12,000 of which were for business purposes. You may assumethat Rumpole has maintained all necessary records and a logbook.Calculate Rumpole’s deduction for car expenses under the two methods in Div 28 of ITAA1997. Assume that depreciation has been adjusted for part year use and the impact of thecar limit.Question 12.5Sarah is employed as a personal assistant to Martha Tallis, a successful freelance lifestyleconsultant and motivational speaker. One day, Martha told Sarah to go to the library andborrow a book which Martha needed to prepare for a speech. Sarah borrowed the book andgave it to Martha. Four weeks later Sarah received an email from the library advising herthat the book was overdue. Sarah asked Martha for the book so that she could return it.Martha could not find the book. When Sarah told the library that the book was lost, thelibrary demanded that she pay a $110 fine for the loss of the book.Advise Sarah as to the deductibility of the $110 fine payment.Question 12.6Following on from 12.5, Sarah did not have $110 in cash in order to pay the library fine, soshe charged the fine payment to her credit card, which incurred interest at a rate of 20% perannum. On that same day, Sarah also paid a $190 speeding fine with her credit card, whichwas the result of her speeding to get to work on time. Twelve months later Sarah was ableto pay off the total amount of $300 which she had charged to her credit card. By that time,she had paid an amount of $60 in interest.Advise Sarah as to the deductibility of the interest.Question 12.7Following on from 12.5 and 12.6, Sarah felt extremely annoyed about the library fine anddecided to talk to Martha about it. She told Martha that she thought that Martha shouldreimburse her for the cost of the library fine, since it was Martha who had lost the book.Martha replied that it was Sarah’s job as her personal assistant to make sure Martha didn’tlose any books, and so it was only right that Sarah should bear the cost. They argued for along time. After the argument, Martha rang her lawyer and the lawyer advised her that sheshould reimburse Sarah for the library fine. The next day, Martha reimbursed Sarah $110.How does the reimbursement impact upon Sarah’s ability to claim a deduction for the finepayment?3Question 12.8Following on from 12.5–12.7, after Martha reimbursed Sarah the $110, she discovered thatSarah had sent out to all of Martha’s clients an email describing Martha as “a fraud and abully”. Unfortunately, the email had been passed on to a popular gossip website and it wasrunning as its lead story “Martha Tallis bullies PA”. Martha realised immediately that thiscould seriously impact upon her business. She fired Sarah and called her lawyer again. Herlawyer agreed to begin preparing a defamation suit against Sarah and the gossip website.Three weeks later Martha’s lawyer sent her a bill, which included:(a) a charge of $250 for the oral advice given over the phone in relation to whetherMartha should reimburse Sarah for the library fine (described in Question 12.7); and(b) a charge of $10,000 for the lawyer’s work in preparing the defamation suit.Advise Martha as to the deductibility of the legal fees.Question 12.9Following on from 12.5–12.8, within six months it was clear to Martha that her business hadsuffered greatly and her revenue had dropped by 50%. She was forced to give up her leaseon an office in the city and work from home in her lounge room. She put her desk in onecorner of the lounge room and worked there on her laptop, which she leased from ExecutiveRentals.Advise Martha as to the deductibility of the mortgage payments for her home, electricitycosts for lighting and heating, and lease payments for the laptop.Question 12.10Following on from 12.5–12.9, in order to rebuild her business, Martha decided to puttogether a DVD, which included the best parts of all her motivational speeches and asummary of her key philosophies as a lifestyle consultant. She sent the DVD to all her formerclients, her few remaining current clients and to potential new clients. Martha spent $20,000to make the DVD. Although it is a lot of money, she believes that it will be worth it in thelong run.Advise Martha as to the deductibility of the DVD production costs.Question 12.11Jake is an accountant who migrated to Australia three years ago. As part of establishinghimself in Australia, he intends to invest in the property market. As Jake is not familiar withthe Australian property market, he engaged the assistance of a property broker to assistwith finding a suitable investment property. The broker charged an upfront fee of $5,000. Six4months later, the broker located a vacant block of land and suggested that Jake developthree townhouses on it. The cost of the land ($1 million) and estimated development costs($900,000) exceeded Jake’s budget and he decided to undertake the venture with a businesspartner. The agreement with the business partner was that Jake would purchase the landand the partner would incur all development costs. The profits from the eventual sale of thetownhouses, expected to be in 18 months, would be split equally between Jake and thepartner. Jake established a $1 million line of credit facility with his bank which would enablehim to access the required funds as necessary. The interest rate on the facility was 8.5% perannum and Jake provided the title to the land as security for the funds.Advise Jake as to the deductibility of the property broker’s fee and bank interest chargesunder s 8–1.Question 12.12Following on from 12.11, shortly after the land was purchased, Jake’s business partnerdeclared bankruptcy. Jake was unable to find another suitable business partner andsubsequently sold the land at auction at a loss for $900,000. With sale proceeds beinginsufficient to discharge his borrowings, Jake continues to pay interest charges on theremaining $100,000 owed to the bank. Advise Jake as to the deductibility of the interestcharges incurred after the land was sold?Question 12.13Consider the facts from 12.11. Would your response to the deductibility of the bank interestcharges change if Jake borrowed the money from the bank and provided the title to hisresidential home as security for the line of credit facility? Assume that the value of Jake’sresidential home exceeds $1 million.Question 12.14Following on from 12.11, would your response to the deductibility of the bank interestcharges change if, instead of buying the block of land himself, Jake on‐lent the funds to hissister at an interest rate of 3% and Jake’s sister purchased the block of land in her name?5QuestionsCHAPTER 13 – SPECIFIC DEDUCTIONSQuestion 13.1Advise Cheryl of her tax consequences from the following transactions:(a) Donation of $300 to the building fund of her local public primary school.(b) Donation of $50 to her local public library (as a result she does not need to paymembership fees of $20 that year to borrow books from the library).(c) Payment of $700 membership fees to the real estate agents’ association. Cheryl is aprofessional real estate agent but she has not been working as one for the last twoyears following the birth of her child. However, she maintains her membership ofthe association as she intends to go back to work one day.Question 13.2Digby owns a bookstore. He undertakes the following activities:(a) replastering and repainting a wall which had been damaged due to a leak;(b) recarpeting the whole shop as the old carpet had worn out due to normal wear andtear;(c) installing a new payment counter with new display signs; and(d) repainting the front of the store with a new type of glossy paint to make it moreattractive to walk‐in customers.Advise Digby of his tax consequences arising from the above information.Question 13.3Alina recently inherited a large block of land from her uncle. She built a house on the landand subsequently sold the house and the land for $900,000. Alina received advice on the taxconsequences of the sale from her accountant, who is a registered tax agent. Theaccountant’s fees for the year were $1,800. The fees related to the lodgment of Alina’sincome tax return ($500) and the advice regarding the sale ($1,300). Advise Alina as towhether the $1,800 paid to her accountant is deductible for income tax purposes.Question 13.4In Year 1, Beta Pty Ltd has $600,000 of assessable income and $1,000,000 of deductions. InYear 2, Beta has $300,000 of exempt income, $200,000 of assessable income and $500,000of deductions. In Year 3, Beta has $500,000 of assessable income, $200,000 of exemptincome and $200,000 of deductions.Advise Beta of its taxable income (or loss) in each year.6Question 13.5Big Shoes Pty Ltd sells shoes exclusively online. Customers are invoiced for the shoes whenthey are shipped and are only required to pay for the shoes once they have been receivedand deemed satisfactory. Big Shoes includes the invoice amount in its assessable incomewhen the invoice is issued. As of 30 June, Big Shoes determined that it had $10,000 inunpaid invoices. Its records indicated that 70% of the invoices related to shoes sold withinthe last month, which was considered acceptable. However, of the remaining $3,000, $1,000related to invoices which were more than three months overdue. In accordance with itscustomary practice, Big Shoes wrote off the $1,000 of outstanding invoices. Its standardpractice is to issue payment reminders before writing off the debt and turning it over to adebt collector. Big Shoes also created a provision for bad debts of $2,000 at this time.Advise Big Shoes as to what amount (if any) it can deduct in relation to the unpaid invoices.Question 13.6Rumpole is a medical doctor and a scientist. He works at a local hospital in themornings, attending to patients. At lunchtime he takes a train to the local universitywhere he works in a research laboratory. At the end of the day, he takes the trainhome.Advise Rumpole as to the tax deductibility of the train fares.
- Assignment status: Already Solved By Our Experts
- (USA, AUS, UK & CA PhD. Writers)
- CLICK HERE TO GET A PROFESSIONAL WRITER TO WORK ON THIS PAPER AND OTHER SIMILAR PAPERS, GET A NON PLAGIARIZED PAPER FROM OUR EXPERTS